The GST Council in its 45th meeting in Lucknow on 17 September 2021 discussed a host of issues which required taxpayers clarification at the earliest and keeping up with efforts to streamline and ease the compliance procedures with clarity, CBIC issued following 3 circulars on 20th September 2021 to give effect to the GST Council discussions:

1. Circular No. 159/15/2021-GST dated 20 September 2021 – Provides clarification on the scope of intermediary services under GST law.

2. Circular No. 160/16/2021-GST dated 20 September 2021 – Clarifications in respect of certain GST related issues.

3. Circular No. 161/17/2021-GST dated 20 September 2021 – Clarification relating to export of services – condition (v) of Section 2(6) of IGST Act, 2017 – clarification surrounding interpretation of term ‘merely establishment of distinct person’ in relation to export of services.

3d rendering GST Tax India with rupee sign

The clarifications provided by the circulars are detailed below:

1. Circular No. 159/15/2021-GST

The department has loosely interpreted and provided a variety of meanings to the scope of ‘intermediary services’ treating Indian company and its foreign group companies as mere establishment of distinct persons, thus restricting the refund in respect of supply executed between the two and raising demands on the companies. This has led to several high-level judgements across the country.

Thus, to finally settle the dust and bring an end to the tussle between taxpayer and departmental authorities, the circular provides the below clarification on this issue.

According to the circular, there are certain pre-requisite conditions to be tested before treating the supply of any service as ‘intermediary services’. These conditions are as follows:

  • Existence of minimum three parties: There should be a minimum of three parties involved in the transactions namely the service provider, service recipient and the facilitator.
  • Two distinct supplies must be present: –

(a) the principal supply between the provider and recipient of service.

(b) the ancillary supply which facilitates the principal supply between the provider and recipient of service.

Note: A person involved in supply of main supply on principal to principal basis to another person cannot be considered as supplier of intermediary service.

  • The party acting as intermediary in the supply should own the character that of an agent or a broker or any other similar person.
  • The supply should not cover persons who supply such goods or services or securities (covered by main supply) on their own account. It means that, if a person making the main supply on principal to principal basis, it is not covered by the scope of ‘intermediary service’.
  • Sub-contracting of any service cannot be considered as an intermediary service. In other words, if a sub-contractor is making the principal supply (either whole or in part) on behalf of the main supplier of service then, such sub-contracting cannot be termed as intermediary service.
  • The provisions of place of supply for intermediary services covered in Section 13 of IGST Act, 2017 cannot be invoked by the taxpayer unless either the location of supplier of location of recipient of intermediary services is outside India.

In addition to the above conditions, the government has also provided few examples by accepting the findings of CESTAT in the case of CSG Systems International (India) Pvt Ltd v/s Commissioner Of Central Tax, Bengaluru South Commissionerate for better understanding of the applicability of provisions of intermediary services.

Important Observation:

It is pertinent to note that Notification No 9/2017-Integarted Tax (Rate) dated 28 June 2017 (amended) vide Entry No 12AA charges NIL rate of tax in case of services provided by an intermediary when location of both supplier and recipient of goods is outside the taxable territory.

This entry does not take into consideration situation wherein the transaction between supplier and recipient located outside the taxable territory is that of services thereby resulting in undue disadvantage for the service providers.

 2. Circular No. 160/16/2021-GST

The circular provided clarifications in respect of certain contentious issues under GST law as follows:

Sr No. Issue under consideration Clarification
1 For the purpose of ITC availment in relation to debit notes issued by the supplier.

Issue 1 – What is the relevant date to determine the financial year of the debit note?

Issue 2 – Whether ITC availment (on or after 1st January 2021) in respect of debit notes issued either prior to or after 1st January 2021 would be governed by the amended provisions of GST law?

The debit notes were delinked from the relevant original invoice vide amendment made through Finance Act, 2020. To provide further clarity on delinking the date of debit note from the date of relevant original invoice for the purpose of ITC availment on such debit note, the government has issued the following clarifications:

Clarification on Issue 1 –

The date of debit note will be the relevant date to determine the financial year for the purpose of ITC availment in respect of such debit note.

Example – For an original invoice dated 21st January 2021, a corresponding debit note was issued by the supplier on 15th April 2021.

In this case, the FY of this debit note is FY 2021-22 and hence, credit in respect of such debit note can be availed upto the date of filing of GSTR-3B for September 2022.

Clarification on Issue 2 –

There are 2 situations in this case as explained below:

1. If the ITC is availed on the debit note on or after 1st January 2021, then irrespective of whether the debit note is issued prior to or after 1st January 2021, the ITC availment would be governed by the provisions of amended GST law (Section 16(4) of CGST Act, 2017).

It means that in such scenario, the date of debit note would be of relevance for ITC availment.

2. If the ITC is availed on debit before 1st January 2021, the ITC availment would be governed by the old ITC provisions for debit note.

It means that in such scenario, the date of original invoice would be of relevance for ITC availment.

Important Observation:

The above clarification means that the supplier can now negotiate with their customers and raise debit notes in respect of past original invoices wherein there was error in taxable value or tax charged. Also, the recipient will be eligible to take credit in respect of such debit note subject to fulfilment of other ITC conditions.

2 Whether it is necessary to carry physical copy of invoice during movement of goods wherein the supplier has issued an e-invoice in respect of such supply? There is NO need to carry physical copy of invoice during goods movement wherein the supplier has generated e-invoice.

The electronic production of QR code having invoice reference number (IRN) generated from e-invoice portal will be sufficient.

3 Whether first proviso to Section 54(3) of CGST Act, 2017 restricting refund of unutilized ITC is also applicable to export of goods having NIL export duty rates. Only those goods on which some export duty has to be paid at the time of export, will be covered by the restriction imposed under section 54(3) on availment of refund of accumulated ITC.

It means that goods with NIL rate of export duty are not restricted under first proviso to Section 54(3) of the CGST Act, 2017

3. Circular No. 161/17/2021-GST

The circular clarifies that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India (also referred to as foreign company under Companies Act) are separate persons under CGST Act provisions, and thus are separate legal entities.

It means that these two separate persons would not be considered as ‘merely establishments of a distinct person’ in accordance with Explanation 1 to Section 8 of IGST Act, 2017.

 The clarification is summarized as below for reader’s ease of reference and understanding:

Case scenario Service provider Service recipient Clarification
1 Subsidiary/ sister concern/ group concern, etc. of a foreign company incorporated in India under the Companies Act, 2013 (such company qualifies as a ‘Company in India’ as per Companies Act, 2013) Establishments of the said foreign company located outside India (incorporated outside India) The supply of service would not be barred by the condition (v) of the sub-section (6) of the section 2 of the IGST Act 2017 i.e. it will not be treated as a supply of service between merely establishment of distinct persons.


It means that such supply would qualify as ‘export of services’ subject to fulfilment of other export conditions laid down in law.

2 A company incorporated in India Related establishments of such company outside India which are incorporated under the laws outside India

It is an extremely important clarification on part of government considering the hardships faced by taxpayers in claiming GST refund due to difference in interpretation of the term ‘merely establishment of distinct persons’ by the department. Over the years, the department had rejected or withheld the GST refund of several large taxpayers on the same ground by treating the transactions mentioned in table above as supply of service between establishment of distinct person.

Important Observation:

It is important that the industry reads Circular 161/17/2021-GST in conjunction with Circular 159/15/2021-GST to take clarification on intermediary services into consideration and avoid litigation such as in the case of CSG Systems International (India) Pvt Ltd v/s Commissioner Of Central Tax, Bengaluru South Commissionerate. This is also important for the reason because the master agreement signed between such Indian company and its related establishment abroad lacks clarity on several clauses, ‘own account status’ in particular. The department taps into this deficiency and use it as a medium to restrict taxpayers refund demand.


Through the above circulars, the Government is trying to bring clarity to some of the most contentious issues faced by the taxpayers and these circulars are expected to steer away a lot of pending as well as prospective future litigations under GST.


Disclaimer: The above article is based on the information provided in the tax laws, tax rules, various tax platforms, the relevant circulars and notifications and the author’s personal view of the tax law. Please refer to the latest law and consult the author before forming an opinion basis the information provided above as tax laws are subject to frequent changes. The author is not responsible for any issues arising as a result of opinion based on the above article without consultation. The author can be contacted on [email protected]

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October 2021